Colleges and universities are howling at an administration proposal to cut off federal student loans to institutions unless more than 35% of their graduates pay back the loans. That would still allow for 65% to default on what they owe! But even this mild requirement would put a lot of for-profit colleges out of business. Their average rate of students paying back loans is 36%. That means that 64% of their students blow off their loans, getting a free ride from American taxpayers who are putting them through college.
But the story at not-for-profit colleges and universities is not much better. Only 54% of public college graduates are paying back their loans. At private schools the rate is 56%.
Previously, banks made these loans, which the government guaranteed. In the case of defaults, taxpayers paid them back. Under the new system, the federal government cuts out the banks and just takes the losses directly.
This costs the government–that is to say, taxpayers– billions of dollars. The total amount of student debt is now $830 billion, which is more than the accumulation of all credit card debt! And a huge percentage of that obligation is now going to be paid back, leading some to call it a new mortgage bubble about to burst.
I know it’s hard to pay back student loans. One reason is that the quality of education many of these institutions are dishing out is very, very low. The institutions–many of which are turning out to be committing out and out fraud in getting students to borrow money they can never pay back–deserve a big share of the blame, as well as the corrupt system itself.
(My own institution, Patrick Henry College, refuses to take government money, even in the form of federal student loans. We try to make up for that in other forms of financial aid, drawing on private sources. It can be a hardship, but it’s worth it.)